AP Microeconomics Quiz: Monopolistic Competition

What this quiz covers

This quiz focuses on Monopolistic Competition, giving you a quick way to practice the rules, question types, and explanations that matter most for AP Microeconomics.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

Question 1

1. Economic profit remains positive because demand is downward sloping and the firm is a price maker.
2. Economic profit becomes zero because entry shifts demand left until $P=ATC$ at the profit-maximizing quantity. (correct answer)
3. Economic profit becomes zero because firms produce where $MC$ is tangent to $ATC$ in the long run.
4. Economic profit stays positive because patents prevent entry into the signature cold brew market.
5. Economic profit becomes zero only if the product becomes identical to competitors' products.

Explanation: This question tests your understanding of monopolistic competition and long-run equilibrium. Monopolistic competition features differentiated products (like BeanBuzz's signature cold brew) and free entry/exit, which distinguishes it from both monopoly and perfect competition. In the short run, BeanBuzz earns economic profit since P=$5 > ATC=$4 at Q=80, but this profit attracts new coffee shops offering their own specialty drinks. As competitors enter, BeanBuzz's demand curve shifts leftward because customers now have more alternatives, reducing the quantity demanded at each price. The entry process continues until BeanBuzz's demand curve becomes tangent to its ATC curve at the profit-maximizing quantity where MR=MC, eliminating economic profit. Unlike a monopoly (which has barriers preventing entry), monopolistic competition allows free entry that erodes profits to zero. The key strategy is to recognize that positive short-run profits trigger entry, shifting demand left until P=ATC at the optimal output level.

Question 2

1. Firms collude to keep price above $ATC$, preventing economic profit from falling to zero.
2. Free entry causes each firm's demand to shift left until $P=ATC$ at the output where $MR=MC$. (correct answer)
3. Long-run equilibrium requires $MC$ to be tangent to $ATC$, which eliminates economic profit.
4. Government licensing rules create entry barriers that guarantee zero profit for all firms.
5. Long-run equilibrium requires products to be identical, so firms become price takers.

Explanation: This question tests your understanding of why monopolistic competition leads to zero long-run profit. Monopolistic competition combines differentiated products (like PetalPop's custom bouquet subscriptions) with free entry and exit, distinguishing it from both monopoly and perfect competition. In the short run, PetalPop earns positive economic profit where MR=MC, but this profit signal attracts new florists offering their own subscription services. As competitors enter the market, PetalPop's demand curve shifts leftward because customers now have more floral subscription options, reducing the quantity demanded at each price. The entry continues until PetalPop's demand curve shifts far enough left to become tangent to its ATC curve at the profit-maximizing quantity where MR=MC, resulting in P=ATC and zero economic profit. Unlike monopoly (with entry barriers), monopolistic competition's free entry ensures profits are competed away. The key strategy is recognizing that entry shifts each firm's demand left until the tangency condition (demand touching ATC at one point) eliminates profit.

Question 3

1. Economic profit becomes zero because entry shifts demand left until $P=ATC$ at the profit-maximizing quantity. (correct answer)
2. Economic loss persists because product differentiation prevents entry from occurring in the long run.
3. Economic profit becomes positive because the firm can raise price without losing customers in the long run.
4. Economic profit becomes zero because firms produce where $MC$ is tangent to $ATC$ in the long run.
5. Economic profit becomes zero only if the market becomes perfectly competitive with identical products.

Explanation: This question tests your understanding of monopolistic competition when firms face short-run losses. Monopolistic competition involves differentiated products (like GlowSkin's lavender oat soap) and free entry/exit, unlike monopoly or perfect competition. In the short run, GlowSkin experiences economic loss since P=$10 < ATC=$12 at Q=50, which will cause some soap makers to exit the market. As competitors exit, GlowSkin's demand curve shifts rightward because remaining customers have fewer alternatives, increasing the quantity demanded at each price. The exit process continues until GlowSkin's demand curve becomes tangent to its ATC curve at the profit-maximizing quantity where MR=MC, eliminating the economic loss and achieving zero economic profit. A common misconception is that losses persist forever, but free exit in monopolistic competition ensures adjustment to zero profit. The transferable strategy is to check whether short-run profit is positive (triggering entry) or negative (triggering exit), then recognize that demand shifts until tangent to ATC.

Question 4

1. Barriers to entry prevent new firms from competing away profits.
2. Firms produce where $MC$ is tangent to demand, forcing $P$ to equal minimum $ATC$.
3. Free entry and exit shift each firm's demand until demand is tangent to $ATC$ at the profit-maximizing quantity. (correct answer)
4. A single firm controls the market, so it can set price above $ATC$ indefinitely.
5. Products become identical, so each firm faces a perfectly elastic demand curve in the long run.

Explanation: This question tests your understanding of the mechanism driving monopolistic competition to long-run zero profit. Monopolistic competition features differentiated products (like CitySlice's spicy pesto slice) and crucially, free entry and exit—unlike monopoly which has entry barriers. In the short run, CitySlice earns positive economic profit at its profit-maximizing output where MR=MC, which attracts new pizza shops offering their own specialty slices. As competitors enter, CitySlice's demand curve shifts leftward, reducing both price and quantity at the profit-maximizing point. This entry process continues until CitySlice's demand curve becomes tangent to its ATC curve at the quantity where MR=MC, ensuring P=ATC and zero economic profit. The key misconception to avoid is confusing this with monopoly (which maintains profits through barriers) or perfect competition (where products are identical). The transferable insight is that free entry/exit is the mechanism that shifts individual firm demand until it's tangent to ATC, eliminating any economic profit or loss.

Question 5

1. Firms collude to keep price above average total cost, preventing profits from falling to zero.
2. Free entry shifts each firm's demand left until it is tangent to $ATC$ at the profit-maximizing output. (correct answer)
3. The marginal cost curve becomes tangent to $ATC$, so price automatically equals average total cost.
4. Barriers to entry ensure that the number of firms stays fixed, so profit remains positive.
5. Products become identical across firms, so each firm faces a perfectly elastic demand curve.

Explanation: This question tests your understanding of monopolistic competition in AP Microeconomics. Monopolistic competition features many firms selling differentiated products, with free entry and exit in the long run. In the short run, a firm may earn economic profits if price exceeds average total cost at the MR=MC output, but in the long run, entry erodes these profits. Zero economic profit occurs because new firms enter, shifting each existing firm's demand curve leftward until it is tangent to the ATC curve at the profit-maximizing quantity. A common misconception is that monopolistic competition is like monopoly with permanent profits, but unlike monopoly, free entry ensures profits are temporary. To approach similar questions, always check for free entry as the key mechanism driving long-run adjustments. Look for the condition where the demand curve is tangent to ATC in the long-run equilibrium graph.

Question 6

1. Economic profit is zero because $MC$ becomes tangent to demand, forcing $P$ to equal $MC$.
2. Economic profit is zero because new firms enter, shifting each firm's demand left until it is tangent to $ATC$ at the profit-maximizing output. (correct answer)
3. Economic profit stays positive because product differentiation eliminates the incentive for entry.
4. Economic profit is zero because products become identical, making each firm a price taker with perfectly elastic demand.
5. Economic profit stays positive because high fixed costs create insurmountable entry barriers in monopolistic competition.

Explanation: This question tests your understanding of why monopolistic competition leads to zero long-run economic profit. Monopolistic competition features differentiated products (like TrailTune's sport earbuds with unique fit) and free entry/exit, unlike monopoly which maintains entry barriers. In the short run, TrailTune earns economic profit at the output where MR=MC, which serves as a signal attracting new headphone manufacturers with their own designs. As competitors enter the market, TrailTune's demand curve shifts leftward because consumers now have more earbud options, reducing the quantity demanded at each price level. This entry process continues until TrailTune's demand curve becomes tangent to its ATC curve at the profit-maximizing quantity where MR=MC, resulting in P=ATC and zero economic profit. The misconception that product differentiation eliminates competition is false—free entry ensures profits are competed away despite differentiation. The transferable strategy is understanding that entry shifts each firm's demand left until achieving tangency with ATC, the defining characteristic of long-run monopolistic competition equilibrium.

Question 7

1. Economic profit becomes zero because entry shifts demand left until $P=ATC$ at the output where $MR=MC$. (correct answer)
2. Economic profit remains positive because a downward-sloping demand curve guarantees profit in the long run.
3. Economic profit becomes zero because $MC$ is tangent to $ATC$ at the long-run equilibrium output.
4. Economic profit becomes zero only if entry is restricted by government licensing in the cupcake market.
5. Economic profit becomes zero because the firm becomes a single-price monopolist over all cupcakes.

Explanation: This question tests your understanding of long-run profit erosion in monopolistic competition. Monopolistic competition combines differentiated products (like BrightBites' gluten-free cupcakes) with free entry and exit, distinguishing it from monopoly which has entry barriers. In the short run, BrightBites earns economic profit because P>ATC at the profit-maximizing output where MR=MC, but this profit attracts new bakeries offering their own specialty cupcakes. As competitors enter the market, BrightBites' demand curve shifts leftward because customers now have more gluten-free options, reducing the quantity demanded at each price. The entry continues until BrightBites' demand curve shifts far enough left to become tangent to its ATC curve at the quantity where MR=MC, achieving P=ATC and zero economic profit. A common misconception is that downward-sloping demand guarantees profit, but free entry in monopolistic competition ensures profits are competed away. The key strategy is recognizing that positive profits trigger entry, shifting demand left until the tangency condition eliminates all economic profit.

Question 8

1. Economic profit becomes zero because entry shifts demand left until $P=ATC$ at the output where $MR=MC$. (correct answer)
2. Economic profit remains positive because the firm can restrict output like a monopoly indefinitely.
3. Economic profit becomes zero because $MC$ is tangent to $ATC$ in the long run.
4. Economic profit becomes zero only if products become identical and advertising disappears.
5. Economic profit remains positive because legal entry barriers are assumed in monopolistic competition.

Explanation: This question tests your understanding of long-run equilibrium in monopolistic competition. Monopolistic competition involves differentiated products (like MetroMugs' custom travel mugs) and free entry/exit, distinguishing it from monopoly which has legal or structural barriers. In the short run, MetroMugs earns economic profit because P>ATC at Q* where MR=MC, but this profit signal attracts new mug designers to enter the market. As competitors enter with their own custom designs, MetroMugs' demand curve shifts leftward because customers now have more travel mug options, reducing the quantity demanded at each price. The entry process continues until MetroMugs' demand curve becomes tangent to its ATC curve at the profit-maximizing quantity where MR=MC, achieving P=ATC and zero economic profit. Unlike monopoly (with entry barriers maintaining profits), monopolistic competition's free entry ensures long-run zero profit despite product differentiation. The key insight is that entry shifts demand left until the tangency condition is met, eliminating all economic profit regardless of how unique the product seems.

Question 9

1. Economic profit becomes zero because entry shifts demand left until $P=ATC$ at the output where $MR=MC$. (correct answer)
2. Economic profit remains positive because firms can always restrict output like a monopoly.
3. Economic profit becomes zero because marginal cost becomes tangent to the demand curve in the long run.
4. Economic profit becomes positive because barriers to entry increase as more firms enter.
5. Economic profit becomes zero only if the ice cream becomes identical across firms and price equals marginal cost.

Explanation: This question tests your understanding of monopolistic competition in AP Microeconomics. Monopolistic competition features many firms selling differentiated products, with free entry and exit in the long run. In the short run, a firm may earn economic profits if price exceeds average total cost at the MR=MC output, but in the long run, entry erodes these profits. Zero economic profit occurs because new firms enter, shifting each existing firm's demand curve leftward until it is tangent to the ATC curve at the profit-maximizing quantity. A common misconception is that monopolistic competition is like monopoly with permanent profits, but unlike monopoly, free entry ensures profits are temporary. To approach similar questions, always check for free entry as the key mechanism driving long-run adjustments. Look for the condition where the demand curve is tangent to ATC in the long-run equilibrium graph.

Question 10

1. Economic loss persists because downward-sloping demand prevents any adjustment in the long run.
2. Economic profit becomes positive because remaining firms face less competition and can block entry.
3. Economic profit is driven to zero as some firms exit, shifting remaining firms' demand right until $P=ATC$ at $MR=MC$. (correct answer)
4. Economic profit becomes zero because marginal cost becomes tangent to demand after exit.
5. Economic profit is driven to zero only if magazines become identical and firms become price takers.

Explanation: This question tests your understanding of monopolistic competition in AP Microeconomics. Monopolistic competition features many firms selling differentiated products, with free entry and exit in the long run. In the short run, a firm may incur economic losses if price is below average total cost at the MR=MC output, but in the long run, exit eliminates these losses. Zero economic profit occurs because some firms exit, shifting remaining firms' demand curves rightward until they are tangent to the ATC curve at the profit-maximizing quantity. A common misconception is that monopolistic competition is like monopoly with permanent profits, but unlike monopoly, free entry ensures profits are temporary. To approach similar questions, always check for free entry as the key mechanism driving long-run adjustments. Look for the condition where the demand curve is tangent to ATC in the long-run equilibrium graph.

Question 11

1. Economic profit remains positive because each firm faces a downward-sloping demand curve in the long run.
2. Economic profit becomes zero because entry shifts demand left until $D$ is tangent to $ATC$ at the quantity where $MR=MC$. (correct answer)
3. Economic profit becomes zero because $MC$ shifts until it is tangent to $D$ at the long-run equilibrium price.
4. Economic profit becomes zero because products become identical and firms become price takers.
5. Economic profit remains positive because monopolistic competition assumes legal barriers to entry.

Explanation: This question reinforces the core principle of monopolistic competition regarding long-run equilibrium. In monopolistic competition, firms sell differentiated products (like unique phone case designs) and face no significant barriers to entry. When firms earn positive economic profit in the short run (P > ATC at MR = MC), this attracts new entrants offering their own differentiated phone cases. Each new entrant shifts existing firms' demand curves leftward as consumers spread their purchases across more options. Entry continues until each firm's demand curve is tangent to its ATC curve at the profit-maximizing quantity, eliminating economic profit. Unlike monopoly (where barriers prevent entry) or perfect competition (where products are identical), monopolistic competition features differentiated products with free entry. The reliable strategy is recognizing that entry shifts demand left until the tangency condition ensures zero economic profit in the long run.

Question 12

1. Economic profit becomes negative because entry forces all firms to charge below marginal cost.
2. Economic profit remains positive because each firm's demand is downward sloping in the long run.
3. Economic profit becomes zero because entry shifts demand left until $P=ATC$ at the output where $MR=MC$. (correct answer)
4. Economic profit becomes zero because the marginal cost curve becomes tangent to the demand curve.
5. Economic profit becomes zero only if restaurants sell identical meals and become price takers.

Explanation: This question tests your understanding of monopolistic competition in AP Microeconomics. Monopolistic competition features many firms selling differentiated products, with free entry and exit in the long run. In the short run, a firm may earn economic profits if price exceeds average total cost at the MR=MC output, but in the long run, entry erodes these profits. Zero economic profit occurs because new firms enter, shifting each existing firm's demand curve leftward until it is tangent to the ATC curve at the profit-maximizing quantity. A common misconception is that monopolistic competition is like monopoly with permanent profits, but unlike monopoly, free entry ensures profits are temporary. To approach similar questions, always check for free entry as the key mechanism driving long-run adjustments. Look for the condition where the demand curve is tangent to ATC in the long-run equilibrium graph.

Question 13

1. Firms are price takers in the long run because products become identical across sellers.
2. Firms keep positive economic profit because downward-sloping demand prevents entry from reducing price.
3. Firms earn zero economic profit because free entry shifts demand left until $D$ is tangent to $ATC$ at the output where $MR=MC$. (correct answer)
4. Firms earn zero economic profit because $MC$ becomes tangent to $ATC$ as new firms enter.
5. Firms earn zero economic profit because a single firm becomes dominant and sets price equal to marginal cost.

Explanation: This question examines the fundamental feature of monopolistic competition that drives profits to zero. Monopolistic competition combines differentiated products (like craft sodas with unique flavors) with free entry and exit. When firms earn positive economic profit in the short run (P > ATC at MR = MC), the absence of entry barriers attracts new firms offering their own differentiated sodas. As new firms enter, each existing firm's demand curve shifts leftward because consumers spread their purchases across more options. The critical mechanism is that entry continues until each firm's demand curve becomes tangent to its ATC curve at the profit-maximizing output, ensuring P = ATC and zero economic profit. This differs from both monopoly (with entry barriers) and perfect competition (with identical products and horizontal demand). To analyze these markets, remember that free entry shifts demand left until the tangency condition eliminates all economic profit.

Question 14

1. Long-run profit is zero because firms merge into a single seller and behave like a monopoly.
2. Long-run profit is zero because $MC$ is tangent to the demand curve at the equilibrium quantity.
3. Long-run profit is zero because products become identical and each firm faces perfectly elastic demand.
4. Long-run profit is zero because entry shifts demand left until the firm earns normal profit where $D$ is tangent to $ATC$. (correct answer)
5. Long-run profit is zero because legal barriers to entry prevent new firms from competing away profit.

Explanation: This question tests identification of the key mechanism eliminating profits in monopolistic competition. Monopolistic competition involves firms selling differentiated products (like streaming workout subscriptions with unique content) with free entry and exit. When a firm earns economic profit in the short run (P > ATC at MR = MC), the lack of entry barriers allows new firms to enter with competing differentiated workout programs. Each new entrant shifts existing firms' demand curves leftward as subscribers spread across more options. The crucial insight is that entry continues until each firm earns only normal profit, which occurs when the demand curve is tangent to the ATC curve at the profit-maximizing quantity. This differs from monopoly (where legal barriers would block entry) and perfect competition (where products are identical). To solve these problems, focus on how free entry shifts demand left until the tangency condition ensures zero economic profit.

Question 15

1. Economic profit remains positive because $P>ATC$ at the short-run profit-maximizing quantity.
2. Economic profit becomes negative because the firm must set $P=MC$ to remain in the market.
3. Economic profit goes to zero because entry shifts demand left until $P=ATC$ at the profit-maximizing quantity. (correct answer)
4. Economic profit remains positive because product differentiation creates a permanent barrier to entry.
5. Economic profit goes to zero because firms produce identical products and compete away all market power.

Explanation: This question tests your understanding of monopolistic competition. Monopolistic competition features many firms selling differentiated products with free entry and exit. In the short run, firms like SweetCrumb can earn positive economic profits as shown by P > ATC at the quantity where MR = MC, but in the long run, graphs depict demand shifting left due to entry, leading to zero profits. Positive profits attract new firms, increasing competition and shifting each incumbent's demand curve leftward until it is tangent to the ATC curve at the profit-maximizing quantity, ensuring P = ATC and zero economic profit. A common misconception is that monopolistic competition allows long-run profits like a monopoly, but unlike monopoly with its barriers to entry, monopolistic competition has free entry that erodes profits. To solve similar questions, check if the market has free entry, which eliminates long-run profits. Look for the long-run equilibrium where the demand curve is tangent to the ATC curve.

Question 16

1. Monopolistic competition has many firms and differentiated products, while perfect competition has many firms and identical products. (correct answer)
2. Monopolistic competition has one firm and no close substitutes, while perfect competition has many firms and close substitutes.
3. Monopolistic competition has zero economic profit and $P=MC$, while perfect competition has zero economic profit and $P>MC$.
4. Monopolistic competition has entry barriers, while perfect competition has advertising that prevents entry.
5. Monopolistic competition has permanent economic profit, while perfect competition has zero economic profit.

Explanation: This question tests your understanding of monopolistic competition. Monopolistic competition features many firms selling differentiated products with free entry and exit. Short-run profits for salons occur when demand lies above ATC at MR = MC, but long-run differences from perfect competition include product differentiation leading to P > MC despite zero profits. Entry continues until demand is tangent to ATC, justifying zero profits in both structures but with monopolistic competition's inefficiency. A common misconception is that monopolistic competition has barriers like monopoly, but it actually has free entry like perfect competition, though with differentiated rather than identical products. To solve similar questions, check if the market has free entry, which eliminates long-run profits. Look for the long-run equilibrium where the demand curve is tangent to the ATC curve, unlike perfect competition's price-taking.

Question 17

1. Free entry causes new firms to enter, shifting each incumbent's demand left until demand is tangent to $ATC$ at $MR=MC$. (correct answer)
2. High barriers to entry prevent new firms from entering, allowing incumbents to keep economic profit indefinitely.
3. Perfectly elastic demand forces each firm to take the market price, so $P=MC$ for each firm in the long run.
4. Identical products eliminate market power, so each firm becomes a price taker and earns zero profit in the long run.
5. Firms maximize profit where $MC$ is tangent to $ATC$, which ensures $P=ATC$ in the long run.

Explanation: This question tests your understanding of monopolistic competition. Monopolistic competition features many firms selling differentiated products with free entry and exit. In the short run, coffee shops can earn positive economic profits with demand above ATC at MR = MC, but long-run graphs show entry shifting demand left to tangency with ATC. Positive profits prompt entry, dividing market demand and shifting each firm's demand curve left until tangent to ATC at the profit-maximizing quantity, resulting in zero economic profit. A common misconception is that monopolistic competition sustains profits like a monopoly due to differentiation, but unlike monopoly's entry barriers, free entry in monopolistic competition ensures zero long-run profits. To solve similar questions, check if the market has free entry, which eliminates long-run profits. Look for the long-run equilibrium where the demand curve is tangent to the ATC curve.

Question 18

1. It stays positive because the firm's downward-sloping demand curve prevents entry from reducing demand.
2. It becomes zero because entry shifts each firm's demand left until $P=ATC$ where demand is tangent to $ATC$ at the output where $MR=MC$. (correct answer)
3. It becomes zero because the firm's $MC$ curve becomes tangent to demand at the profit-maximizing output.
4. It stays positive because monopolistic competition has the same entry barriers as monopoly.
5. It becomes zero because identical products make the firm a price taker in the long run.

Explanation: This question focuses on the long-run profit outcome in monopolistic competition. Monopolistic competition features differentiated products (the bakery's unique cupcakes) and free entry/exit. The short-run economic profit of $1 per unit (P=$4 - ATC=$3) attracts new bakeries to enter the market. As new firms enter, each existing firm's demand curve shifts leftward because customers now have more bakery options. Unlike monopoly, monopolistic competition has no entry barriers, so this process continues until profits are eliminated. The long-run equilibrium occurs when each firm's demand curve is tangent to its ATC curve at the quantity where MR=MC, ensuring P=ATC and zero economic profit. To analyze these situations, remember that free entry is the crucial feature that drives monopolistically competitive firms to zero long-run profit through demand shifts.

Question 19

1. The firm becomes allocatively efficient because long-run equilibrium requires $P=MC$ at the chosen output.
2. The firm earns permanent profit because advertising creates an insurmountable barrier to entry.
3. The market becomes a monopoly because one firm buys out rivals and prevents entry.
4. Free entry shifts each firm's demand left until the demand curve is tangent to $ATC$ at the profit-maximizing output. (correct answer)
5. Products become identical, so each firm faces a perfectly elastic demand curve and sets $P=MC$.

Explanation: This question tests your understanding of monopolistic competition in AP Microeconomics. Monopolistic competition features many firms selling differentiated products, with free entry and exit in the long run. In the short run, a firm may earn economic profits if price exceeds average total cost at the MR=MC output, but in the long run, entry erodes these profits. Zero economic profit occurs because new firms enter, shifting each existing firm's demand curve leftward until it is tangent to the ATC curve at the profit-maximizing quantity. A common misconception is that monopolistic competition is like monopoly with permanent profits, but unlike monopoly, free entry ensures profits are temporary. To approach similar questions, always check for free entry as the key mechanism driving long-run adjustments. Look for the condition where the demand curve is tangent to ATC in the long-run equilibrium graph.

Question 20

1. Monopolistic competition has $D$ tangent to $ATC$ with $P>MC$, while perfect competition has $P=MC$ with zero economic profit. (correct answer)
2. Monopolistic competition has identical products, while perfect competition has differentiated products.
3. Monopolistic competition has barriers to entry, while perfect competition has a single firm protected by patents.
4. Monopolistic competition has permanent economic profit, while perfect competition has permanent economic loss.
5. Monopolistic competition has $MC$ tangent to $ATC$, while perfect competition has $MR$ tangent to $ATC$.

Explanation: This question tests your understanding of monopolistic competition. Monopolistic competition features many firms selling differentiated products with free entry and exit. Short-run profits for food trucks like the taco truck occur with demand above ATC, but long-run differences from perfect competition include tangency with P > MC. Entry shifts demand left until tangent to ATC at MR = MC, justifying zero profits but distinguishing from perfect competition's P = MC efficiency. A common misconception is that monopolistic competition sustains profits like monopoly, but free entry erodes them, unlike monopoly's barriers. To solve similar questions, check if the market has free entry, which eliminates long-run profits. Look for the long-run equilibrium where the demand curve is tangent to the ATC curve, contrasting with perfect competition.